SEC. 138 OF N.I. ACT - INGRADIENTS (SC)

1.
Appellant and one R.G. Bhat were jointly running a business in the
name and style of Vinaya Enterprises at Hubli together. Appellant
executed a Power of Attorney in his favour.

2.
Allegedly, he had handed over four blank cheques to the said
constituted attorney for meeting the expenses of the business. The
counter foil of the cheque books was also allegedly filled in by Shri
R.G. Bhat.

The
cheque bearing No. 044483 was shown to have been a self drawn one for
a

sum
of Rs. 1500/−.

3.
Disputes and differences having arisen between the appellant and the
said R.G. Bhat in connection with running of the said business, the
power of attorney granted in his favour was cancelled by the
appellant. Disputes and differences between the parties were referred
to the Panchayat. In the meeting of the Panchayat held on 02.10.1996,
complainant/respondent who is the brother−in−law of the said R.G.
Bhat was admittedly present. He participated therein. The result of
the said meeting of the Panchayat is not known but it is not in
dispute that the appellant herein issued a public notice through his
advocate in a local newspaper on 3.10.1996 to the following effect:

My
client appointed Shri Raghavendra Ganapati Bhat as his power of
Attorney Holder on 21.8.1993 to run Vinay Enterprises as agent. He
has started misusing the terms and conditions of the Power of
Attorney. Hence my client cancelled the Power of Attorney on 21.8.96
by giving notice. If at all anybody deals with him on the Power of
Attorney my client is not responsible in future.

5.
On the premise that the respondent advanced a sum of Rs. 1,50,000/−
to the appellant on 14.6.1998 and the latter on his own went to his
house on 20.7.1998to return the loan by an account payee cheque which
having been dishonoured when presented; a complaint petition was
filed.

6.
Prior thereto, a notice was sent on 27.8.1998 which was allegedly
served on the appellant on 5.9.1998. He on that day itself sent a
reply alleging in substance that the complainant had been colluding
with R.G. Bhat in regard thereto, stating:

Your
client D.G. Hegde Goddalamane is husband of sister of my power of
attorney holder R.G. Bhat (Proprietor Prasad Enterprises Tarihal
Industrial Estate) of Hubli. I do not have any dealing with him as
alleged in your letter.

Knowing
that the power of attorney holder R.G. Bhat has lost faith and having
acted illegally and in anticipation of his committing further illegal
acts I have legally cancelled my power of attorney and published the
notice in a famous Kannada

daily
Samyukta Karnataka on 3.10.96. From that date I do not have any
relation with him or any of his relatives including your client.

Please
verify the handwriting and signature on the cheque and advice your
client not to do such (illegalities) colluding with his
brother−in−law.

7.
The learned Trial Judge convicted the appellant and sentenced him to
undergo imprisonment for six months and further directed payment of
compensation for a sum of Rs. 1,50,000/−. An appeal preferred there
against was dismissed by the Sessions Judge by a judgment and order
dated 28.7.2004.

8.
The High Court in exercise of its revisional jurisdiction, however,
on a revision petition filed by the appellant, partly allowed the
same by reducing the substantive sentence to one week.

9.
The Special Leave Petition was filed by the appellant in person. As
it was noticed by a Bench of this Court that some question of law
arises for its consideration, Mr. S. Balakrishnan, learned senior
counsel was requested to assist the Court.

10.
Mr. Balakrishnan urged that the learned Trial Judge, the Sessions
Court as also the High Court committed a serious illegality insofar
as it misread and misapplied the provisions of Section 139 of the
Negotiable Instruments Act (for short the Act).

It
was contended that the procedural requirements of Section 138 are:

(i)There
is a legally enforceable debt.

(ii)
The drawer of the cheque issued the cheque to satisfy part or whole
of the debt.

(iii)
The cheque so issued has been returned due to insufficiency of funds.

It
was urged that only ingredient No. 2 is a subject matter of
presumption under Section 139 of the Act and not the first one. It
was argued that except the word of mouth of the complainant nothing
has been brought on record to prove the offence as against the
appellant.

11.
Mr. S.N. Bhat, learned counsel appearing on behalf of the respondent,
on the other hand, submitted that the appellant has rightly been
found guilty of commission of an offence under Section 138 of the Act
as bouncing of the cheque issued by him carries a mandatory
presumption in terms of Section 139 read with Section 118 (a) of the
Act.

It
was urged that it is not believable that the appellant despite
referring the dispute to the Panchayat and issuing a paper
publication on 3.10.1996 would not insist on taking back the cheque
book from his erstwhile constituted attorney or would not inform the
bank thereabout. Moreover, he having come out with a positive
defence, it was for him to prove the same.

12.
Before we embark upon the factual issue involved herein, we would
notice the manner in which the court proceeded to determine the case.

The
learned Trial Judge framed the following points for its
determination:

(1)
Whether the complainant proves the hilt that the accused to discharge

earlier
debt of Rs.1,50,000/−, has got issued a cheque on 20.7.1998 for
Rs.1,50,000/− drawn at Vijay Bank, Tarahal Branch, Hubli?

(2)
If so, whether the said cheque came to be dishonoured as funds
insufficient after its presentation and despite of issuance of
notice, the accused did not pay the due amount within stipulated time
without any cause, thereby Negotiable Instruments Act?

The
learned Trial Judge noticed the contents of the claim petition as
also the evidence of PW−1. It also noticed the suggestions given to
the said PW−1 by the appellant herein. Upon taking into
consideration the same as also the statement of the appellant under
Section 313 of the Code of Criminal Procedure, it posed a question as
to whether there was no debt payable by the accused to the
complainant and if so, whether the complainant colluding with R.G.
Bhat had created the cheque with an intention to cause loss to the
appellant. It, however, without making any further discussion,
answered the said question directly on the material brought on
record referring to a decision of the Karnataka High Court in S.R.
Muralidar v. Ashok G.Y. [ILR 2001 Karnataka 4127] in extenso and
opining that his decision in the case is similar to that of the
Karnataka High Court, stating:

Considering
the proposition of law, in the present case also the accused admitted
the signature on Ex.P.1. But, the contention is that his P.A. Holder
mis−utilized his signed blank cheques through his relative
complainant and the fact of the present case and fact of the decision
mentioned by me are similar one and the observation made by the
Honble High Court in the above decision and principle laid down
therein are clearly applicable to the case in hand. Therefore, the
defence taken by the accused herein without stepping into the
witness−box, is not acceptable one and there is no cogent evidence
produced by the accused to prove his special reasons for issuance of
the cheque in question.

13.
It again referred to a decision of this Court in K. Bhaskaran v.
Sankaran Vaidhyan Balan and Others [AIR 1999 SC 3762] and made almost
a similarobservation holding that as the complainant has discharged
his initial burden, the onus shifted on the accused to produce
rebuttal evidence against the presumption laid down in favour of the
complainant stating:

Here,
the accused has not produced any evidence to discard the testimony of
PW−1. Therefore, the presumption is to be drawn in favour of the
holder of the cheque, who has received it for discharge of liability
in view of the decision of the Honble Supreme Court.

14.
Yet again, it relied upon a decision of the Karnataka High Court in
M/s. Devi Tyres v. Nawab Jan [AIR 2001 Karnataka H.C.R. 2154],
wherein it was opined:

There
is issued (sic) that the amount is payable and no criminal court is
required to embark upon any enquiry that goes behind the Act of
issuance of the cheque. If the drawer contends that there were
certain special reasons whereby a cheque was issued and that the
cheque was not intended to be encashed or honoured, the onus of
establishing this shifts squarely to the accused.

15.
The complainants case was, thus, primarily accepted for the reason
that the appellant did not step into the witness box.

16.
The appellate court took an identical stand. It proceeded on the
premise that the statement of accused under Section 313 of the Code
of Criminal Procedure regarding misuse of blank cheque by the
complainant and filling up Rs. 1,50,000/− instead of Rs. 1500/−
is contradictory to his own admission in the reply to the notice
issued to him.

On
what basis the said opinion was formed is not known. The appellate
court refused to enter into the question as to whether the
prosecution case is wholly unreliable, as the complainant had not
been able to show his source of income so as to enable him to advance
a huge loan of Rs. 1,50,000/−, holding:

Now
as far as the financial ability of the complainant to issue cheque
for such huge amount to the accused is not a matter to be considered
by the trial court or by me also since issue of Ex.P.1 and its
dishonour is proved by the complainant beyond reasonable doubt.

17.
The High Court in exercise of its revisional jurisdiction although
accepted the contention of the appellant that the presumption under
Section 139 of the Act extends only to the extent that the holder of
the cheque received the cheque for the discharge in whole or in part
of any debt or other liability and the same only means that cheque
was issued for consideration, but does not extend to the extent that
the cheque was issued for the discharge of the debt or liability as
pleaded by the accused, opined that the complainant had discharged
that onus by adducing his own evidence. Observing that the appellant
did not step into the witness box, it was opined that although the
relationship between the appellant and Shri R.G. Bhat was strained,
there was nothing to show that the relationship between the appellant
and the complainant became strained despite the fact that a panchayat
meeting was held in regard to the said dispute

in
1996. The High Court, however, refused to go into the factual aspect
of the matter stating that it was exercising a revisional
jurisdiction, stating:

Since
the burden of proving that the cheque had been misused is on the
accused− petitioner, and there being a concurrent finding of the
Trial Court and the Appellant Court with regard to that holding that
the petitioner had failed to discharge that burden, I do not find any
ground to interfere in the order of the Trial Court and that the
Appellate Court, so far as they hold the petitioner guilty of an
offence punishable under Section 138 of theNegotiable Instruments
Act.

18.
Before embarking upon the legal issues, we may analyse the deposition
of PW−1 Complainant. He was a resident of village Goddalmane.
Appellant is a resident of village Kekkar. As he was running an
industry at Hubli, he sometimes resided in Hubli also. They were said
to be friends. He asked him to give a loan of Rs. 1.5 lakhs in the
first week of June, 1998 and the amount was handed over to him on
14th June, 1998. It was allegedly agreed that on the appellants
failure to repay the said loan within one month, 15% interest would
be charged.

No
document was executed; no pronote was executed; no receipt was
obtained.

Appellant
is said to have come to his house suo moto on 20.07.1998 and handed
over the cheque which was sent to Varada Grameen Bank for collection
whereupon notice had been issued. Despite the fact that he was aware
that a dispute had been raised in regard to the writings in the
cheque, the same was not proved. Merely, the cheque was tendered and
it was marked as an exhibit. The cheque appears to have been issued
as a proprietor of a business concern.

Despite
the fact that R.G. Bhat was his brother−in−law, he denied that he
was running the said business. He also feigned his ignorance as to
whether the said industry was being run by R.G. Bhat on the basis of
the Power of Attorney executed by the appellant. He, however,
accepted that they had been running it together. He also accepted the
relationship between him and R.G. Bhat. He knew about the dispute. He
accepted that a panchayat meeting was held in regard thereto.
Surprisingly, he denied his knowledge in regard to the existence of
the power of attorney stating that the same was not made in his
presence. He admitted that he was present on 2.10.1996 in the
panchayat meeting to resolve the problem arising out of the dispute
between R.G. Bhat and the appellant. He accepted that wooden and
steel materials were placed in Vinay Enterprises and R.G. Bhat had
been running the same type of industry in Tarihal Industrial Estate.
According to him, he had been running such an industry in the name of
Prasad Enterprises even prior to 1996. His acquaintance, according to
him, with the appellant was only through his brother−in−law. He
did not say that he had friendship with the appellant. There also
does not appear to be any business transactions between them. He
could not state about the denomination of the notes although
according to him he had drawn the amount from the society.

He
did not produce any books of accounts or any other proof to show that
he got so much money from the bank. He admittedly did not have any
written document pertaining to the accused. He accepted that there
was no witness to the transaction. He, of course, denied certain
suggestions, but the suggestions put to him were required to be
considered by the court below in the backdrop of the facts and
circumstances of the case.

19.
The courts below failed to notice that ordinarily in terms of Section
269SS of the Income Tax Act, any advance taken by way of any loan of
more than Rs. 20,000/− was to be made by way of an account payee
cheque only.

Section
271D of the Income Tax Act reads as under:

271D.
Penalty for failure to comply with the provisions of section 269SS.

(1)If
a person takes or accepts any loan or deposit in contravention of the
provisions of section 269SS, he shall be liable to pay, by way of
penalty, a sum equal to the amount of the loan or deposit so taken or
accepted.

(2)
Any penalty imposable under sub−section (1) shall be imposed by the
Joint Commissioner.

20.
Indisputably, a mandatory presumption is required to be raised in
terms of Section 118(b) and Section 139 of the Act. Section 13(1) of
the Act defines negotiable instrument to mean a promissory note, bill
of exchange or cheque payable either to order or to bearer.

Section
138 of the Act has three ingredients, viz.:(i) that there is a
legally enforceable debt; (ii) that the cheque was drawn from the
account of bank for discharge in whole or in part of any debt or
other liability which pre− supposes a legally enforceable debt; and
(iii) that the cheque so issued had been returned due to
insufficiency of funds.

21.
The proviso appended to the said section provides for compliance of
legal requirements before a complaint petition can be acted upon by a
court of law.

Section
139 of the Act merely raises a presumption in regard to the second
aspect of the matter. Existence of legally recoverable debt is not a
matter of presumption under Section 139 of the Act. It merely raises
a presumption in favour of a holder of the cheque that the same
has been issued for discharge of any debt or other liability.

22.
The courts below, as noticed hereinbefore, proceeded on the basis
that Section 139 raises a presumption in regard to existence of a
debt also.The courts
below, in our opinion, committed a serious error in proceeding on the
basis that for proving the defence the accused is required to step
into the witness box and unless he does so he would not be
discharging his burden. Such an approach on the part of the courts,
we feel, is not correct.

23.
An accused for discharging the burden of proof placed upon him under
a statute need not examine himself. He may discharge his burden on
the basis of the materials already brought on records. An accused
has a constitutional right to maintain silence. Standard of proof
on the part of an accused and that of the prosecution in a criminal
case is different.

Upon
consideration of various judgments as noted herein above, the
position of law which emerges is that once
execution of the promissory note is admitted, the presumption under
Section 118(a) would arise that it is supported by a consideration.
Such a presumption is rebuttable. The defendant can prove the
non−existence of a consideration by raising a probable defence. If
the defendant is proved to have discharged the initial onus of proof
showing that the existence of consideration was improbable or
doubtful or the same was illegal, the onus would shift to the
plaintiff who will be obliged to prove it as a matter of fact and
upon its failure to prove would disentitle him to the grant of relief
on the basis of the negotiable instrument.The burden upon
the defendant of proving the non− existence of the consideration
can be either direct or by bringing on record the preponderance of
probabilities by reference to the circumstances upon which he relies.
In such an event, the plaintiff is entitled under law to rely upon
all the evidence led in the case including that of the plaintiff as
well. In case, where the defendant fails to discharge the initial
onus of proof by showing the non−existence of the consideration,
the plaintiff would invariably be held entitled to the benefit of
presumption arising under Section 118(a) in his favour. The court may
not insist upon the defendant to disprove the existence of
consideration by leading direct evidence as the existence of negative
evidence is neither possible nor contemplated and even if led, is to
be seen with a doubt [Emphasis supplied]

25.
Furthermore, whereas prosecution must prove the guilt of an accused
beyond all reasonable doubt, the standard of proof so as to prove a
defence on the part of an accused is preponderance of probabilities.
Inference of preponderance of probabilities can be drawn not only
from the materials brought on records by the parties but also by
reference to the circumstances upon which he relies.

26.A statutory presumption has an evidentiary value. The question as
to whether the presumption whether stood rebutted or not, must,
therefore, be determined keeping in view the other evidences on
record. For the said purpose, stepping into the witness box by the
appellant is not imperative. In a case of this nature, where the
chances of false implication cannot be ruled out, the background fact
and the conduct of the parties together with their legal requirements
are required to be taken into consideration.

27.
In M.S. Narayana Menon Alias Mani v. State of Kerala and Another
[(2006) 6

SCC
39], it was held that once the accused is found to discharge his
initial burden, it shifts to the complainant.

28.
Four cheques, according to the accused, appear to have been drawn on
the same day. The counterfoil of the cheque book, according to the
appellant, was in the handwriting of R.G. Bhat wherein it was shown
that apart from other payments, a sum of Rs. 1500/− was withdrawn
on a self− drawn cheque. The courts below proceeded to hold that
the defence raised by the appellant has not been proved, which, in
our opinion, is not correct. He did not know that the said cheque had
not been encashed. He replied to the notice thinking that one of the
cheque has been misused. There is nothing on record to show that he
knew that one of the cheques was still with R.G. Bhat.

29.
Disputes and differences between him and R.G. Bhat stood established
by admission of the respondent himself. Similar industry was being
run by R.G. Bhat although he was acting as the constituted attorney
of the appellant. According to the appellant, R.G. Bhat had cheated
him. The counterfoil showed that not more than Rs. 20,000/− had
ever been withdrawn from that bank at a time. The courts were
required to draw an inference as to the probability of the
complainants advancing a sum of Rs. 1.5 lakhs on mere asking and that
too without keeping any documentary proof. Even there was no witness.
The purported story that the appellant would himself come forward to
return the amount by a cheque knowing fully well that he did not have
any sufficient funds is difficult to believe.

12.
The Act raises two presumptions; firstly, in regard to the passing of
consideration as contained in Section 118 (a) therein and, secondly,
a presumption that the holder of cheque receiving the same of the
nature referred to in Section 139 discharged in whole or in part any
debt or other liability.

Presumptions
both under Sections 118 (a) and 139 are rebuttable in nature.

Having
regard to the definition of terms proved and disproved as contained
in Section 3 of the Evidence Act as also the nature of the said
burden upon the prosecution vis−‘−vis an accused it is not
necessary that the accused must step into the witness box to
discharge the burden of proof in terms of the aforementioned
provision.

13.
It is furthermore not in doubt or dispute that whereas the standard
of proof so far as the prosecution is concerned is proof of guilt
beyond all reasonable doubt; the one on the accused is only mere
preponderance of probability.

10The
High Court was entitled to take notice of the conduct of the parties.
It has been found by the High Court as of fact that the complainant
did not approach the court with clean hands. His conduct was not that
of a prudent man.

Why
no instrument was executed although a huge sum of money was allegedly
paid to the respondent was a relevant question which could be posed
in the matter. It was open to the High Court to draw its own
conclusion therein. Not only no document had been executed, even no
interest had been charged. It would be absurd to form an opinion that
despite knowing that the respondent even was not in a position to
discharge his burden to pay instalments in respect of the prized
amount, an advance would be made to him and that too even after
institution of three civil suits. The amount advanced even did not
carry any interest. If in a situation of this nature, the High Court
has arrived at a finding that the respondent has discharged his
burden of proof cast on him under Section 139 of the Act, no
exception thereto can be taken.

22
Presumptions are rules of evidence and do not conflict with the
presumption of innocence, because by the latter, all that is meant is
that the prosecution is obliged to prove the case against the accused
beyond reasonable doubt. The obligation on the prosecution may be
discharged with the help of presumptions of law or fact unless the
accused adduces evidence showing the reasonable possibility of the
non−existence of the presumed fact.

23
. In other words, provided the facts required to form the basis of a
presumption of law exist, no discretion is left with the court but to
draw the statutory conclusion, but this does not preclude the person
against whom the presumption is drawn from rebutting it and proving
the contrary. A fact is said to be proved when, after considering the
matters before it, the court either believes it to exist, or
considers its existence so probable that a prudent man ought, under
the circumstances of the particular case, to act upon the supposition
that it exists.

Therefore,
the rebuttal does not have to be conclusively established but such
evidence must be adduced before the court in support of the defence
that the court must either believe the defence to exist or consider
its existence to be reasonably probable, the standard of reason
ability being that of the prudent man.

[See
also K.N. Beena v. Muniyappan and Another (2001) 8 SCC 458]

32.
We assume that the law laid down therein is correct. The views we
have taken are not inconsistent therewith.

33.
But, we may at the same time notice the development of law in this
area in some jurisdictions.

The
presumption of innocence is a human right. [See Narender Singh &
Anr. v. State of M.P. (2004) 10 SCC 699, Ranjitsing Brahmajeetsing
Sharma v. State of Maharashtra and Anr. (2005) 5 SCC 294 and Rajesh
Ranjan Yadav @ Pappu Yadav v.CBI through its Director (2007) 1 SCC
70] Article 6(2) of he European Convention on Human Rights provides :
Everyone charged with a criminal offence shall be presumed innocent
until proved guilty according to law. Although India is not bound by
the aforementioned Convention and as such it may not be necessary
like the countries forming European countries to bring common law
into land with the Convention, a balancing of the accused rights and
the interest of the society is required to be taken into
consideration. In India, however, subject to the statutory
interdicts, the said principle forms the basis of criminal
jurisprudence. For the aforementioned purpose the nature of the
offence, seriousness as also gravity thereof may be taken into
consideration. The courts must be on guard to see that merely on the
application of presumption as contemplated under Section 139 of the
Negotiable Instruments Act, the same may not lead to injustice or
mistaken conviction. It is for the aforementioned reasons that we
have taken into consideration the decisions operating in the field
where the difficulty of proving a negative has been emphasized. It is
not suggested that a negative can never be proved but there are cases
where such difficulties are faced by the accused e,g,. honest and
reasonable mistake of fact. In a recent Article The Presumption of
Innocence and Reverse Burdens : A Balancing Duty published in [2007]
C.L.J. (March Part) 142 it has been stated:−

In
determining whether a reverse burden is compatible with the
presumption of innocence regard should also be had to the pragmatics
of proof. How difficult would it be for the prosecution to prove
guilt without the reverse burden? How easily could an innocent
defendant discharge the reverse burden? But courts will not allow
these pragmatic considerations to override the legitimate rights of
the defendant. Pragmatism will have greater sway where the reverse
burden would not pose the risk of great injustice where the offence
is not too serious or the reverse burden only concerns a matter
incidental to guilt. And greater weight will be given to
prosecutorial efficiency in the regulatory environment.

34.
We are not oblivious of the fact that the said provision has been
inserted to regulate the growing business, trade, commerce and
industrial activities of the country and the strict liability to
promote greater vigilance in financial matters and to safeguard the
faith of the creditor in the drawer of the cheque which is essential
to the economic life of a developing country like India.

This,
however, shall not mean that the courts shall put a blind eye to the
ground realities. Statute mandates raising of presumption but it
stops at that.

It
does not say how presumption drawn should be held to have rebutted.
Other important principles of legal jurisprudence, namely
presumption of innocence as human rights and the doctrine of reverse
burden introduced by Section 139 should be delicately balanced.Such balancing acts, indisputably would
largely depend upon the factual matrix of each case, the
materials brought on record and having regard to legal principles
governing the same.

35.
Keeping in view the peculiar facts and circumstances of this case, we
are of the opinion that the courts below approached the case from a
wholly wrong angle, viz., wrong application of the legal principles
in the fact situation of the case. In view of the legal position as
has been enunciated by this Court in M.S. Narayana Menon (supra) and
later cases, we are of the opinion that the High Court should have
entertained the revision application.

36.
For the reasons aforementioned, the appeal is allowed. The judgments
of conviction and sentence passed against the appellant are set
aside.